Holding

A tender offer remains valid for 45 days; withdrawal before the expiry of that period results in forfeiture of the earnest money and no right to refund.

Summary

The State of Maharashtra issued tender notices for the sale of forest bamboo units, requiring a 10% earnest money deposit. A.P. Paper Mills submitted its tender on the deadline of 15 July 1987 and deposited the earnest money. The tender notice stipulated that an offer remains valid for 45 days and cannot be withdrawn during that period; any withdrawal before the final sale result would lead to forfeiture of the earnest money. The respondent withdrew its offer on 15 August 1987, before the 45‑day expiry, and sought a refund, but the government accepted the tender on 7 September 1987 and forfeited the deposit. The Bombay High Court allowed the refund, but the Supreme Court held that the withdrawal was premature, the 45‑day validity period had not elapsed, and consequently the earnest money was liable to be forfeited. The appeal was allowed, setting aside the High Court’s order.

Issues considered

Whether a tender withdrawal made before the expiry of the 45‑day validity period bars the refund of earnest money.
Whether the non‑declaration of the final sale result within the stipulated 30‑day period affects the right to withdraw and claim a refund.
Interpretation of clauses 5(iv), 5(v) and 7 of the tender notice regarding offer validity, withdrawal and forfeiture.
Whether the High Court erred in directing the refund of earnest money.

Legislation cited

Constitution of Indias. Article 226

Subjects

tenderearnest moneyforfeiturewithdrawalcontract validitytender notice45 daysfinal sale resultgovernment procurement

Judgment

STATE OF MAHARASHTRA AND ORS. A
V.

A.P. PAPER MILLS LTD.

APRIL 3, 2006

[ARIJIT PASAYAT AND TARUN CHATTERJEE, JJ.] B

Contract-Offer/bid to tender notice-Withdrawal of, before conclusion
of contract and demand of refund of earnest money deposited-Entitlement
of-Held: Offer under the tender was valid for a period of 45 days from date
of tender of sale and withdrawal was made before expiry of the period-Thus, C
earnest money deposited cannot be refunded and is liable to beforfeited-
Tenderer cannot take a plea that there is no bar on the withdrawal of tender
since the final sale result has not been declared.

Appellant no. 2 and 3 issued a Tender Notice for sale of certain forest
units. The tender was to be submitted on or before 15.7.1987. Respondent D
submitted tenders on 15.7.1987 and also deposited the earnest money. As per
clause 7 of the Tender, the final sale result was to be declared within 30 days,
but the same was not declared. As such the respondent withdrew its offer and
made repeated request for return of the earnest money deposit. On 3.9.1997,
appellant sought approval of the State Government for declaring the final E
sale result. Final sale result was declared .. Government accepted respondent's
tender on 7.9.1987 and thereafter, rejected the request of respondent to refund
the earnest money and forfeited the earnest money on account of withdrawal
of the tender. Respondent filed a writ petition. High Court allowed the same
holding that the respondent had withdrawn the bid to the tender notice before
conclusion of the· contract, thus, was entitled to refund of earnest money F
deposited. Hence the present appeal.

Allowing the appeal, the Court

HELD: Clause S(v) of the Tender Notice clearly spells that once a tender
is tendered the offer shall be considered valid for a period of 45 days from G
the date of tender sale and in the instant case from 29.8.1'987. Clause S(v)
read with clause 5(iv) makes the position clear that once a tender is tendered
no changes can be made and no tender can be withdrawn. Under clause 7,
the provisional sale result has to be declared as early as possible. But the same
. 719
H
720 SUPREME COURT REPORTS [2006] 3 S.C.R.

A is not to be declared which is not to be considered as final sale result and the
final sale result can be declared within 30 days on getting approval of the
competent authority. It cannot be said that the sale results should have been
declared for getting approval of the competent authority by 14.8.87. If the
highest tender is not considered acceptable the final sale result was required
B to be declared within 45 days i.e. by 29.8.87. The withdrawal was made before
the expiry of the period i.e. on 15.8.87. Another request for withdrawal made
after the expiry of the 45 days period does not change the situation. Since the
tender is valid for a period of 45 days and withdrawal is before expiry of the
period the earnest money is to be forfeited. Once the tenderer withdraws the
tender, he cannot take the stand that since the final sale result has not been
C declared there is no bar on the withdrawal of the tender.
[724-F-G-H; 725-B-C-Fl

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4487/2003.

From the Order dated 20.12.2002 of the High Court of Bombay in W.P.
D No. 807/1998.
V. N. Raghupathy for the Appellants.

M.N. Rao, P.N. Gupta and H. Devarajan for the Respondent.

The Judgment of the Court was delivered by
E ARIJIT PASAY AT, J. Chall1;_nge in this appeal is to the judgment of
a Division Bench of the Bombay High Court, Nagpur Bench, directing the
appellant to refund the earnest money which was forfeited along with interest
@ 6% from the date on which the respondent had withdrawn its offer till
actual date of payment. Further direction was given to refund the amount
p within a period of 8 weeks from the date of judgment.

Factual background in a nutshell is as follows:

Appellant no.2 had issued a Tender Notice dated 8.6.1987 for sale of
Bamboo Units in Vadasa (Unit No.7) and Gadchiroli (Unit Nos. 10, 11, 12
and 14). The appellant no.3 had also issued a Tender Sale notice in respect
G of Bhamragarh (Unit No.5) Chandrapur Circle for the same purpose. The
terms and conditions of both the tender notices were identical. The tender
was to be submined in the prescribed form on or before 15.7.1987 and sealed
tenders received from the bidders were to be opened on the same day and
tenderers were to pay earnest money deposit i.e. I 0% of the total royalty to
H be worked out on the basis of the total estimated yield of that Bamboo Unit.
STATE OF MAHARASHTRA v. A.P. PAPER MILLS LTD. [PASAYAT,J.)721

It was mentioned in the Tender Notice that the sealed tender should be A
accompanied by the treasury challan or demand draft indicating that earnest
money has been deposited. It was further stated in the Tender Notice that"in
case of successful tenderers, the earnest money deposit would automatically
stand appropriated towards the security deposit which is required to be
furnished. It is the case of the respondent that as per the conditions stipulated B
in the tender after the submission of the tender, the offer would be co.nsidered
valid for a period of 45 days from the date of the Tender Sale. Pursuant to
the Tender Notices issued by the appellants 2 and 3, the respondent submitted
tenders on 15.7.1987 and before submitting the Tender Notice the respondent
had deposited the earnest money as requ[red by the Tender Notice. As per the
clause 7 of the Tender, the final sale result was to be declared within 30 days C
for getting approval of the competent authority and since appellants 2 and 3
did not declare the final $ale result even after the expiry of 30 days from the
date ofopening of the Tender i.e. 15.7.1987, the respondent sent a telegram
on 15.8.1987 to appellant nos. 2 and 3 in which it was stated that since the
final sale had not been declared within 30 days as per Clause 7 of the Tender
Notice, the respondent had withdrawn its offer and requested for return of the D
earnest money deposit. The respondent also addressed letters to the appellants
2 and 3 on the same date, in which reference was made to the message and
telegram which had been sent earlier. On 17.8.1987 the respondent addressed
another communication reiterating its stand of withdrawing their offer and
requesting for refund of the earnest money. But it did not receive any reply E
to the telegram which was sent on 15.8.1987 or to the letters sent on the same
day addressed to the appellant nos. 2 and 3 and also to the communication
dated 17.8.1987 which was addressed to appellants 2 and 3. Therefore, on
2.9.1987 a letter was addressed to the appellant no.2 stating therein that even
after expiry of 45 days on 29.8.1987 the final results had not been declared
and, therefore, earnest money deposited by the respondent should be refunded. F
Again on 16.9.1987 it addressed letters to appellants 2 and 3 stating therein
that final sale result had not been declared even after the expiry of 45 days
and the respondent had already withdrawn the offer and, therefore, the
respondent was entitled to the refund of the earnest money deposit.

It is an admitted position that the final sale result in respect of the
G
tender opened on 15.7.1987 was declared on 17.9.1987 which. was
communicated to the respondent on 21.9.1987, in which it was mentioned
that the highest offer of the respondent was accepted.

Request of the respondent for refund of the earnest money deposit was H
722 SUPREME COURT REPORTS (2006] 3 S.C.R.

A rejected by appellant no.3 by letter dated 24.9.1987. The respondent filed a
writ petition under Article 226 of the Constitution of India, 1950 (in short the,
'Constitution') challenging the decisions of the appellants 2 and 3 dated
23.9.1987 and decision dated 24.9.1987 rejecting the request of the respondent
to refund the earnest money.

B Present appellants filed their reply in which they denied the allegations
and averments made by the respondent in the writ petition. It was specifically
stated that in terms of Clause 7 the interpretation by the present respondent-
writ petitioner was not correct. Since the respondent had withdrawn his tender
in violation of condition nos. 5(iv) and 5(v) before declaration of final sale
C result, it amounted to the violation of the terms and conditions of the tender
notice and, therefore, the earnest money was not to be refunded and the same
was liable to be forfeited which has been done. It was also submitted that the
writ petition was not maintainable as the controversy related to factual
controversy was involved and, therefore, writ application should be dismissed.

D The High Court held that the writ petition was admitted in the year
1988 and though an alternative remedy by way of suit was available, there
was no bar for entertaining the writ petition. Interpreting the various conditions
of the tender document, the High Court held that the respondent had withdrawn
the bid before conclusion of the contract and, therefore, was entitled to refund
of earnest money deposited which it had paid to the present appellants at the
E time of making its offer in the form of bid to the tender notice. Accordingly,
as noted above, the writ petition was allowed.

In support of the appeal, learned counsel for the appellants submitted
that the interpretation put by the High Court is clearly erroneous. Undisputedly,
F the withdrawal was made before the declaration of the final sale result. The
computation of the period as done is also not on a proper reading of the
clauses.

Per contra, learned counsel for the respondent submitted that even if
it is accepted for the sake of arguments that initial withdrawal was made
G before the stipulated period, yet there was another withdrawal. Looked from
any angle the withdrawal was within the time schedule stipulated in the
conditions.

The rival contentions need careful consideration. Clauses 3 and 5 are

H
important for adjudicating the controversy.
-
STA TE OF MAHARASHTRA v. A.P. PAPER MILLS LTD. [PASAYA T, J.] 723

Clause 3 reads as follows: A
"3. EARNEST MONEY DEPOSIT:

(i) The Earnest Money Deposit shall be paid for each Tender, at the
rate of I0 percent of the total Royalty, to be worked out on the
basis of total estimated yield of that Bamboo Unit and the same B
shall be calculated as per following formula:-
Estimated yield in Rate quoted by the
M.T. of Bamboo Unit X Tenderer per
for which Tender is filled Metric Tonne

10 c
(Earnest Money Deposit amount be rounded to nearest highest figure
of rupee).
(ii) the intending Tenderer, in token of having paid the Earnest Money
Deposit shall enclose a Receipted Treasury Challan or Demand D
Draft of Deposit at call, drawn in favour of the concerned
Divisional Forest Officer on any branch of the scheduled Banks
which is payable at Chandrapur or in the form of National Saving
Certificates duly pledged in the name of the concerned Divisional
Forest Officer. However cheques shall NOT be accepted towards
Earnest Money Deposit. E
(iii) In case of successful tenderers, the Earnest Money shall
automatically stand appropriated towards the Security Deposit
required to be furnished.
(iv) The Earnest Money Deposit of the unsuccessful Tenderer shall be F
refunded as early as possible after decision of the tenders.
(v) No interest shall be payable in any case on the amount of Earnest
Money.
Clause 5 so far relevant reads as follows:

"5. SUBMISSION OF TENDER: G
xxx xxx xxx
(iv) Once, a Tender is tendered no changes can be made, nor can
Tender be withdrawn. In case a Tenderer whose, tender is accepted,
withdraws the tender, the loss sustained in the resale, as may be H
724 SUPREMt COURT REPORTS [2006] 3 S.C.R.

A ordered by the concerned Conservator of Forests, shall be made
good from him while considering the amount paid by him towards
the Earnest Money Deposit.
(v) Once a Tender is tendered the offer shall be considered valid for
a period of 45 days from the date of Tender Sale in case of
B Tenders which are under consideration or till the end of lease
period in case of accepted Tenders. as the case may be. If the
Tender is withdrawn prior to declaration of Final Sale Result. the
amount of Earnest Money Deposit shall be forfeited to the
Government.

c xxx xxx xxx''

So far as the factual position is concerned, the last date for submission
of tender was 15.7.1987 and the respondent had submitted its bid on that
date. On 15 .8.87 the respondent sent telegram stating that since final sales
results had not declared within 30 days as per clause 7 of the notice. it had
D withdrawn its offer and requested for refund of the earnest money. On 3.9.1997
the appellant sought for approval of the competent authority i.e. the State
Government for declaring the final sale result. On 7.9.1987 the Government
accepted the tender of the respondent. On 23-24/9/ 1997 when the respondent
was informed that the earnest money cannot be refunded as the Government
had accepted the tender and its earnest money was forfeited on account of
E withdrawal of the tender.

An offer under the tender was valid for a period of 45 days from the
date of tender of sale and in the instant case from 29.8.1987. Stand of the
respondent that the sale results should have been declared for getting approval
F of the competent authority by 14.8.87 is clearly wrong. If the highest tender
is not considered acceptable the final sale result was required to be declared
within 45 days i.e. by 29.8.87. The bid once made remains operative for a
period of 45 days. Therefore, the decision could be taken on the bid on or
before 29.8.87. The withdrawal was made before the expiry of tl1e period i.e.
on I 5.8.87. Stand of the learned counsel for the respondent that another
G request was made after the expiry of the 45 days period does not change the
situation. Clause 5(v) clearly spells that once a tender is tendered the offer
shall be considered valid for a period of 45 days from the date of tender sale
in case of tenders which are under consideration. If this clause is read with
clause 5(iv) the position is clear that once a tender is tendered no changes can
H be made and no tender can be withdrawn. We are not concerned with a case
STATE OF MAHARASHTRA v. A.I'. PAPER MILLS LTD. [!'ASAY AT, J.)725

of consequences after acceptance of the tender by the successful bidder. In A
such a situation loss sustained in the re-sale and the amount realized less,
shall be recovered from the bidder while adjusting the amount paid by him
towards earnest money deposit. In this case the acceptance of the tender was
after the validity of the period. Therefore, this is not a case which could
authorize the Government to recover the loss from the respondent. But it is B
a case of withdrawal of tender and the effect of it is to be considered. Since
the tender is valid for a period of 45 days and withdrawal is before expiry
of the period the earnest money is to be forfeited. The stand of1Ji.e respondent
that because of delay in declaration of the final sale results there was no bar
on withdrawal of the tender is clearly untenable. Once the tender is withdrawn
the result is that the tenderer who withdraws the tender cannot take the stand C
that sin.cc the final sale result has not been declared there is no bar on the
withdrawal.

Clause 7 is also relevant for the purpose of adjudication. The same
reads as follows:
D
"7. A Provisional sale result of the successful tenderers shall be
declared as early as possible for the information of the Tenderers.
However, this provisional Sale Result shall not be considered as Final
Sale Result. The Final Sale Result shall be. declared within 30 days,
on getting the approval of the competent authority. Further, if in
respect of any unit the highest Tender is NOT considered acceptable E
by the competent authority, and other lower tenders are to be
considered, then the Final Sale Result shall be declared within 45
days."

A reading of the clause makes it clear that the provisional sale result F
has to be declared as early as possible. But the same is not to be declared
which is not to be considered as final sale result and the final sale result can
be declared within 30 days on getting approval of the competent authority.
It had not done in the present case because withdrawal was done while the
tender was under consideration. That being so, the interpretation put by the
High Court is clearly erroneous and deserves to be set aside. The order of the G
High Court is accordingly set aside. The appeal is allowed but without any
order as to costs.

N.J. Appeal allowed.

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